oversight

United Nations: Progress of Procurement Reforms

Published by the Government Accountability Office on 1999-04-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                  United States General Accounting Office

GAO               Report to the Chairman, Committee on
                  International Relations, House of
                  Representatives


April 1999
                  UNITED NATIONS

                  Progress of
                  Procurement Reforms




GAO/NSIAD-99-71
      United States
GAO   General Accounting Office
      Washington, D.C. 20548                                                                              Leter




      National Security and
      International Affairs Division

      B-281996                                                                                      Letter

      April 15, 1999

      The Honorable Benjamin A. Gilman
      Chairman, Committee on International Relations
      House of Representatives

      Dear Mr. Chairman:

      Procurement at the United Nations Secretariat has been criticized for its
      lack of accountability, fairness, and competition as well as its failure to
      provide goods and services on time. In response to these criticisms, the
      U.N. Secretary-General established a High Level Expert Group on
      Procurement in 1994 to examine the Secretariat's procurement system.
      The Expert Group developed comprehensive recommendations to create a
      procurement system that ensured accountability, fairness, competition, and
      the economical and timely delivery of goods and services.1 Altogether, its
      36 recommendations aimed at creating a dynamic system that could
      continuously improve its performance. While the U.N. Secretariat has
      responded to the Expert Group’s recommendations, allegations of
      procurement irregularities continued to come to your attention.

      As agreed with your office, this report discusses the U.N. Secretariat’s
      efforts to reform its procurement system, which annually purchases about
      $400 million of goods and services for U.N. headquarters in New York, field
      missions, and other offices. Specifically, we (1) identified the types of
      procurement problems that the Expert Group and U.N. audit and
      inspection organizations found, (2) assessed progress on the
      implementation of the Expert Group’s recommendations and other reforms
      to correct procurement-related problems, and (3) assessed whether these
      actions have succeeded in achieving the objectives of procurement reform.

      As an agency of the United States, we do not have authority to audit
      directly the operations of the United Nations. For this report, our
      assessment is based on reports by the U.N.’s audit and oversight
      organizations, supplemented by publicly available documents, interviews
      with U.N. officials, and testing of some reforms. (See app. I for further
      details about our report’s scope and methodology.)




      1
          High Level Expert Group Procurement Study Report (New York, N.Y.: United Nations, Dec. 1994).




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Results in Brief   The U.N. Board of Auditors, the U.N. Office of Internal Oversight Services,
                   and the High Level Group of Experts have pointed out numerous problems
                   in the operations of the U.N. Secretariat’s procurement system. These
                   problems involved issues concerning all elements of an effective
                   procurement system, such as lack of competition, with over 50 percent of
                   contracts not competed in the past, and accountability, with confusion over
                   responsibility and authority leading to inconsistent application of rules.
                   Many of these findings refer to the period prior to 1996, but some findings
                   have been more recent. To correct these and other problems, the
                   Secretariat established a High Level Expert Group on Procurement. In
                   1995, the Secretariat adopted the Expert Group's recommendations as the
                   framework for procurement reform and since then has made considerable
                   progress in implementing the recommendations and taken other action to
                   improve its procurement system. For example, evidence developed by
                   U.N. audit and inspection organizations indicates that the Secretariat has
                   strengthened accountability by designating clear lines of authority,
                   improved competitive practices by increasing the percentage of contracts
                   that are awarded through competitive bid, and strengthened the fairness of
                   the process by publishing common specifications for goods procured by
                   the U.N. system.

                   While the Secretariat has made progress in reforming its procurement
                   system, action in several areas is incomplete, and the overall systemic
                   objectives sought by the High Level Expert Group have not yet been
                   achieved. For example, the Secretariat has not established formal
                   procedures to address and adjudicate vendors' grievances, including
                   appointment of an independent ombudsman to help ensure fairness and
                   openness when issues about U.N. procurement procedures are raised.
                   Also, while the Secretariat now competes most contracts, competition is
                   still not completely open because sufficient time is sometimes not given for
                   vendors to prepare bid proposals. Other steps recommended to help
                   ensure transparency and accountability, such as developing a procurement
                   manual for all to use, are partially completed. Also, the Expert Group’s
                   overarching objective was to create a continuously improving procurement
                   system. However, achieving this objective will be difficult until the
                   Secretariat has developed performance measures to indicate whether it is
                   reaching its targets on (1) timeliness in processing requisitions, (2) on-time
                   delivery of goods and services, and (3) quality and cost of contract
                   performance.




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Background                     Each organization within the U.N. system, such as the World Health
                               Organization and the United Nations Development Program, procures
                               goods and services in accordance with its own financial rules and
                               regulations and procurement procedures. (See app. II for a diagram of the
                               U.N. system.) More than 30 procurement offices procure approximately
                               $2.9 billion of goods and services for these organizations annually.
                               Procurements by the U.N. Secretariat are conducted by its Procurement
                               Division, which in 1997 procured $310 million of goods and services while
                               peacekeeping and other field missions procured about $120 million.


Commonly Identified            Several organizations have identified characteristics of an effective
Characteristics of Effective   procurement system. For example, the U.N. system organizations
                               identified such characteristics, which were published by the U.N.'s
Procurement Systems
                               Interagency Procurement Services Office (IAPSO)2 in The Common
                               Guidelines for Procurement by U.N. Organizations. This publication states
                               that the objective of procurement within the U.N. system is the timely
                               acquisition of goods, works, and services while addressing (1) the objective
                               of the U.N. organization concerned; (2) fairness, integrity, and transparency
                               through competition; and (3) economy, effectiveness, and best value for
                               money. The guidelines were intended to communicate basic principles for
                               procurement by U.N. organizations and harmonize U.N. system
                               procurement procedures. The Organization for Economic Cooperation and
                               Development (OECD) identified similar characteristics for an effective
                               public procurement system.3 Its December 1997 policy brief states that a
                               public procurement system should, among other things, (1) employ open
                               competition; (2) ensure that the selection of bidders, tendering procedures,
                               and the awarding of contracts are open to public examination and scrutiny
                               by external audit authorities; (3) incorporate a legal and administrative
                               framework that defines the financial and legal responsibilities of all



                               2IAPSO  is an office under the oversight of the U.N. Development Program's executive board and is
                               funded by the development program and by the procurement services it offers. IAPSO's mandates are
                               to conduct research and development activities in the area of procurement for U.N. organizations and
                               to provide a wide range of procurement services, including advisory services on procurement, direct
                               procurement, and procurement training for U.N. member states and organizations.

                               3
                                Support for Improvement in Governance and Management Policy Brief 3: Public Procurement (Paris,
                               France: OECD, Dec. 1997). This publication is the result of an ongoing joint initiative of the OECD
                               Center for Cooperation with Economies in Transition and the European Union’s PHARE Program. The
                               OECD is a forum of industrialized democracies that studies and formulates policies in all economic and
                               social spheres.




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participants in the procurement process; (4) employ well-trained staff; and
(5) ensure that it achieves good value for money in public expenditure.

The Expert Group also used a similar set of characteristics as the
underlying objectives in developing its report and recommendations to
reform the U.N. procurement system.4 These characteristics, discussed in
both the Expert Group report and in a report that was used by the Expert
Group,5 included:

Integrity - public confidence earned by avoiding any conflict of interest,
maintaining impartiality, avoiding preferential treatment for any group or
individual, and dealing fairly and in good faith with all parties. (Aspects of
this include development of a fair and impartial roster of qualified vendors
and using standard procedures consistently in procurements.)

Openness - policies and procedures available to and understood by all
sources and an acceptable procedure available to redress grievances of
vendors. (Aspects of this include clear written policies, a procurement
manual, standard operating procedures, and a formal clear bid protest
process.)

Accountability - clear lines of procurement responsibility and authority, set
with effective policy direction and audit capabilities established. (Aspects
of this include clear and specific written authorities and delegations of
authority and strengthened oversight.)

Professional workforce - competent workforce responsive to mission
requirements, with continued review and training to improve individual
and system performance. (Aspects of this include ensuring a competent
and knowledgeable workforce through professional training programs and
curriculums, keyed to a career procurement track.)



4The Expert Group was composed of senior officials from Brazil, France, Malaysia, South Africa,
Sweden, the United Kingdom, and the United States who had expertise in and responsibility for
managing procurement, finance, and logistics operations in their countries. Among the members were
a senior logistics manager for Military Logistics, United Kingdom; the Inspector-General of Finance for
Brazil; and the Director, Commodity Division, U.S. Agency for International Development.

5
 Alan Burman, Constraining Costs and Improving the Efficiency of United Nations Peacekeeping
Procurement Operations (Washington, D.C.: U.S. Office of Management and Budget, Sept. 9, 1994).
This study contained the characteristics of an effective procurement system that the United States
identified for the OECD and that the OECD subsequently adopted in its efforts to provide a framework
for public procurement systems in emerging democracies.




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                        Competition - specifications that do not favor a single source and
                        solicitations widely publicized to benefit from the efficiencies of the
                        commercial marketplace. (Aspects of this include open competition for
                        procurement as the norm and all contract activity and awards to be
                        publicly advertised.)

                        Value - quality, timeliness, and cost fairly considered to ensure contracts
                        best meet needs. (Aspects of this include determining requirements and
                        planning for the procurement to take advantage of economies of scale and
                        measuring performance to ensure efficiency in processing purchases and
                        contractor performance.)

                        We use these six characteristics as the organizing framework to report on
                        the types of procurement problems the United Nations experienced, our
                        assessment of the progress the Secretariat has made in carrying out the
                        Expert Group recommendations and other reform actions, and our
                        assessment of whether these actions have achieved the objectives of the
                        Expert Group. (See app. I for further detail on the work we did to ensure
                        these were commonly accepted characteristics of an effective procurement
                        system.)



U.N. Oversight Bodies   The U.N. Board of Auditors (board), the U.N. Office of Internal Oversight
                        Services (OIOS), and the High Level Group of Experts have pointed out
Have Identified         numerous problems in the operations of the U.N. Secretariat’s procurement
Procurement System      system. These problems involved issues concerning all elements of an
                        effective procurement system. Many of these findings refer to the period
Problems                prior to 1996, but some findings have been more recent.


Integrity               The Expert Group and U.N. audit agencies found practices that
                        undermined the fairness and impartiality of the procurement system. For
                        example, OIOS reported that in some locations contracts were awarded to
                        a limited number of vendors without evidence of a market survey,
                        assessment of competitive quotations, or evaluation of vendor
                        performance.6 Further, the Expert Group concluded that problems with


                        6
                          Audits of the Regional Commissions, OIOS (A/52/776) (New York, N.Y.: United Nations Jan. 27, 1998);
                        Audit of Procurement Handled by the Contracts and Procurement Service of the United Nations
                        Department for Development Support and Management Services, OIOS (A/50/945) (New York, N.Y.:
                        United Nations, Apr. 30, 1996).




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                 the vendor roster undermined the integrity of the system. The roster,
                 which lists vendors from whom U.N. officials solicit bids and quotations, is
                 prepared by obtaining from member states and business groups the names
                 of potential suppliers, reviewing their qualifications, and finalizing the list
                 of qualified vendors for use by the Secretariat. The Expert Group found the
                 roster was outdated, inaccurate, and not common to all locations and
                 concluded that the inconsistent and nonstandardized list exposed the
                 procurement system to abuse, self-interest, and fraud. Another problem
                 the board reported was that offices requisitioning goods and services had
                 too much influence on the selection of vendors.7 This raised questions of
                 conflicts of interest in the process, since the procurement office is charged
                 with maintaining independence in the selection of vendors and is not to be
                 pressured by other parties, including the requisitioning office.


Openness         The Expert Group, the board, and OIOS also noted problems related to the
                 openness and transparency of the system. The Expert Group found that
                 policies and procedures were inconsistent, unclear, and not available to all
                 involved in the bidding process, including both vendors and procurement
                 officers. In 1995, the board and OIOS reported that policy and procedures
                 statements and manuals on procurement were lacking and the available
                 regulations were too cumbersome to be of practical use. For example,
                 OIOS reported that guidance in the Department of Peacekeeping
                 Operations did not provide information on procurement procedures for
                 procurement staff to use on a day-to-day basis. OIOS also reported that
                 50 percent of the procurements they reviewed did not meet the
                 requirements for sealed bids and public bid openings or were not
                 communicated to vendors. (App. III contains a flowchart of the
                 Secretariat’s procurement process.) At the same time, the procurement
                 system lacked an ombudsman or impartial bureau to hear vendor
                 complaints and ensure fair treatment.


Accountability   According to the Expert Group, clear lines of authority and responsibility,
                 as well as charts that clearly indicated which officials were responsible for
                 specific tasks, were lacking. Similarly, the board’s 1994-95 biennial report
                 stated that adequate lines of authority, supervision, and accountability had
                 not been established and that appropriate internal control systems needed


                 7
                  Financial Report and Audited Financial Statements for the Biennium Ended 31 December 1993 and
                 Report of the Board of Auditors, Vol. I (A/49/5) (New York, N.Y.: United Nations, July 29, 1994).




                 Page 6                                                        GAO/NSIAD-99-71 United Nations
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                         to be established within the Procurement Division. In addition, the
                         Advisory Committee on Administrative and Budgetary Questions found
                         that there were no guidelines on the composition and procedures for the
                         Headquarters Committee on Contracts.8 The Committee is supposed to
                         review all contracts exceeding established thresholds to ensure rules and
                         regulations are followed and there is consistency between the bid
                         evaluations and the final decision. The board stated in its report on the
                         1994-95 biennium that 57 percent of the contracts for the Department of
                         Peacekeeping Operations and 23 percent of the contracts for the remaining
                         Secretariat departments were reviewed only after they had been signed. In
                         a 1996 audit, OIOS also found a lack of documentation on vendor
                         qualifications, financial status, and past performance, making it difficult for
                         auditors to determine whether vendors had been selected in accordance
                         with U.N. financial rules and regulations.9


Professional Workforce   The Expert Group and U.N. audit organizations found the procurement
                         staff lacked the requisite knowledge of procurement procedures and
                         regulations. For example, in its report on the 1992-93 biennium, the board
                         found that although some training events had taken place, there were no
                         formal training arrangements for staff involved in procurement activities
                         and that very few staff in the procurement services had any recognized
                         qualifications in procurement. Likewise, in its 1994 study, the Expert
                         Group determined that U.N. staff assigned to procurement activities were
                         largely ill-prepared, untrained or inadequately trained, and inexperienced.
                         It stated that staff expertise was extremely low, staff roles and
                         responsibilities were not aligned with mission requirements and staff job
                         descriptions, and specific duties were unclear. Further, in 1995, OIOS
                         identified as one of the general problems of the procurement function a
                         lack of proper training and experience by some procurement officers.10




                         8
                          The Advisory Committee on Administrative and Budgetary Questions examines and reports on the
                         regular and peacekeeping budgets and accounts of the United Nations and the administrative budgets
                         of the specialized agencies (see app. II).

                         9Auditof Procurement Handled by the Contracts and Procurement Service of the Department for
                         Development Support and Management Services.

                         10
                            Report of the Office of Internal Oversight Services for the Period 11/15/94 to 6/30/95, OIOS (A/50/459)
                         (New York, N.Y.: United Nations, Oct. 2, 1985).




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Competition   The U.N. audit organizations found that the U.N. Secretariat did not
              effectively compete procurements in the early and mid 1990s. Similarly, a
              1996 OIOS report on the then-Contracts and Procurement Service of the
              Secretariat’s Department for Development Support and Management
              Services disclosed that in 46 percent of the cases, the technical
              specifications were either restrictive in nature or pointed toward a
              sole-source vendor.11 Thus, the specifications precluded or otherwise
              made extremely difficult a valid, practical, competitive bidding process.
              The board outlined a pattern of poor competitive practices in its reports on
              the 1988-89, 1990-91, 1992-93, and 1994-95 bienniums.


Value         The Expert Group and U.N. audit organizations also discovered that U.N.
              Secretariat procurement practices frequently did not incorporate or
              emphasize quality, timeliness, and other aspects of value in their
              procurements. For example, the Expert Group said that having precise
              specifications for goods and services was the basis for ensuring best value.
              It found, however, that bid specifications were unclear and lacked
              specificity and quality measures, making bid proposals impossible to
              compare. The Expert Group also found that procurement planning was not
              done; thus, the Secretariat could not take advantage of bulk purchases and
              planned acquisitions. Other practices limited obtaining better value. For
              example, the board reported in its 1992-93 biennial report that the use of a
              relatively narrow range of suppliers created an environment where it was
              unlikely that the United Nations was achieving the best value for its
              money.12 Also, in 1997, an OIOS report found in one location that
              inadequate control over the hiring of consultants led to higher fees and
              insufficiently qualified personnel.13




              11
               Audit of Procurement Handled by the Contracts and Procurement Service of the Department for
              Development Support and Management Services.

              12Financial Report and Audited Financial Statements for the Biennium Ended 31 December 1997 and
              Report of the Board of Auditors, Vol. I (A/49/5).

              13
                Review of the Program and Administrative Practices of the U.N. Center for Human Settlements
              (Habitat), OIOS (A/51/884) (New York, N.Y.: United Nations, Apr. 23, 1997).




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Reform Measures        The Secretariat has made considerable progress in implementing the
                       recommendations proposed by the High Level Expert Group and taken
Taken to Improve the   other steps to reform the procurement system. As the first step in
Procurement System     addressing its procurement problems, the Secretariat accepted the
                       36 recommendations of the Expert Group as the framework for its reform
                       efforts. These recommendations included designating clear lines of
                       responsibility and authority for procurement functions, drafting a
                       procurement manual available to all parties, and developing a training
                       curriculum for procurement staff. In June 1995, the Secretariat reported
                       that some actions had already been taken, and it listed additional future
                       steps to implement the plan.14 In March 1996, the U.N. Advisory
                       Committee on Administrative and Budgetary Questions endorsed the
                       Expert Group’s recommendations and stated that procurement reform was
                       of fundamental importance for reestablishing the confidence of the
                       member states in the integrity of U.N. Secretariat procurement
                       operations,15 and in December 1996 the Committee reported to the U.N.
                       General Assembly on progress being made by the Secretariat.16 In
                       November 1998, the Advisory Committee noted that information from the
                       Secretary-General showed considerable progress in implementing the
                       recommendations of the Board of Auditors and the High Level Expert
                       Group.


Integrity              The Advisory Committee noted that in the area of strengthening the
                       integrity of the system, the Secretariat had purged the old roster of vendors
                       and was updating and expanding the new roster, had laid out the main
                       criteria for evaluating suppliers, and had developed common specifications
                       for goods used throughout the U.N. system. The Secretariat also took steps
                       to ensure that requisitioning offices did not unduly influence the bid
                       process, such as requiring the concurrence of the Chief of the Procurement



                       14
                        Review of the Efficiency of the Administrative and Financial Functioning of the United Nations:
                       Progress in the Implementation of Procurement Reform in the U.N. Secretariat, Report of the
                       Secretary-General (A/C.5/49/67) (New York, N.Y.: United Nations, June 25, 1995).

                       15The Implementation of Procurement Reform in the U.N. Secretariat, Fourteenth Report of the
                       Advisory Committee on Administrative and Budgetary Questions (A/50/7/Add. 13) (New York, N.Y.:
                       United Nations, Mar. 8, 1996).

                       16
                        Review of the Efficiency of the Administrative and Financial Functioning of the United Nations:
                       Procurement Reform, Fourth Report of the Advisory Committee on Administrative and Budgetary
                       Questions (A/51/7/Add. 3) (New York, N.Y.: United Nations, Dec. 4, 1996).




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                 Division to allow bids from vendors that had been recommended by the
                 requisitioning office.


Accountability   Steps taken in the area of increasing accountability included reorganizing
                 the procurement function to eliminate overlapping responsibilities and to
                 designate clear lines of authority for procurement. For example, prior to
                 the reorganization, authority for procurement was not centralized within
                 the Secretariat, but after reorganizing, all procurement is to be conducted
                 under the authority of the Procurement Division. At headquarters,
                 procurement is undertaken under the authority of the Assistant Secretary-
                 General for Central Support Services, who delegates this authority to the
                 Procurement Division and the field. In the field, Directors-General of some
                 offices have delegated this authority, and the Assistant Secretary-General
                 clarified the authority and responsibility of field offices by specifying the
                 field officials that could approve contracts and increasing the allowable
                 contract amount field offices could approve from $70,000 to $200,000.
                 Also, the committees required to review contracts before approval, both at
                 headquarters and in the field, were strengthened by (1) selecting a full-time
                 permanent chair for the headquarters committee and (2) specifying the
                 committees’ working methods and policy guidelines for required reviews.
                 The Secretary-General further reported that the requirements for contract
                 approval were being followed more closely than in the past. For example,
                 the number of contracts awarded before required review by the
                 Headquarters Committee on Contracts decreased from 47 percent in 1995
                 to 3.4 percent for the Secretariat and 2.8 percent for peacekeeping
                 procurement in 1998.17


Competition      Competition has also been strengthened. In 1998, the scope for
                 competitive contracting was significantly increased by adding professional
                 services, medicines, medical supplies, and hospital or surgical supplies to
                 the list of items subject to the open bidding process. Both invitations to bid
                 and contract awards are publicized electronically on the internet, and the
                 percentage of procurements that were competitively bid increased from
                 31 percent in 1994 to 73 percent in 1998.



                 17
                   Procurement contracts that are awarded and then reviewed after the award are termed ex post facto
                 contracts. Current regulations require that contracts equal to or greater than $200,000 be reviewed by
                 the Headquarters Committee on Contracts before they are awarded.




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Other Areas of           The Secretariat has taken action on several of the other recommendations
Improvement              of the Expert Group. For example, the Secretariat has provided
                         procurement staff, particularly at headquarters, training seminars on cost
                         and price analysis, conflict resolution, and the new U.N. information
                         system. There is some evidence the steps taken have improved the
                         headquarters workforce. For example, in 1998, OIOS examined a sample of
                         personnel files and found that following a period of high turnover,
                         90 percent of the headquarters procurement staff now had procurement-
                         related qualifications, including government and military procurement
                         experience. OIOS also found that senior officers at headquarters had an
                         average of 17 years of procurement experience, and it concluded that the
                         vast majority were qualified to do their jobs. Also, according to board
                         officials, the quality of the workforce at U.N. headquarters has improved
                         due in part to the training.



Outstanding              Although the Secretariat has taken some action on almost all
                         recommendations of the Expert Group and improved the procurement
Procurement Reform       system, several reform measures remain incomplete, and the objective of
Issues                   creating an effective procurement system with the capacity to continuously
                         improve has not yet been achieved. Recommendations or reform actions
                         that have been partially implemented fall in the areas of integrity and
                         openness, professional workforce, competitive practices, and value.


Integrity and Openness   The Expert Group recommended that to help ensure the integrity and
                         openness of the system, an independent complaints bureau/ombudsman be
                         established to adjudicate vendor grievances. As of January 1999, formal
                         procedures for the grievance process had not been developed. Since
                         formal procedures were lacking, cases may be treated inconsistently, and
                         vendors may be treated unequally. Also, the ombudsman function is not
                         fully independent but is being carried out by the Under Secretary-General
                         for Management and the Assistant Secretary-General for Central Support
                         Services. The Secretariat has stated that one or the other official—the one
                         who is not involved in a particular case for which a grievance arises—
                         would review the grievance. According to OIOS, it is questionable whether
                         these officials can act as impartial judges. In this regard, there is a direct
                         line of authority from the Chief of the Procurement Division to the
                         Assistant Secretary-General, who reports to the Under Secretary-General.
                         According to a private sector expert on procurement and the Deputy
                         Assistant Administrator for Acquisition Policy for the U.S. government’s



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                         General Services Administration, to avoid the appearance of a conflict of
                         interest, the ombudsman should not be in the reporting chain of the
                         officials potentially involved in the cases he or she reviews.

                         In providing openness and transparency, the procurement manual has
                         shortcomings. The Secretariat developed a procurement manual in
                         response to the Expert Group’s recommendations. However, the manual
                         does not include a mission statement, clear explanations of policy, or
                         detailed, step-by-step discussions of procedures required for field
                         personnel to perform their duties, as recommended. According to the
                         Expert Group and other procurement experts, a clear and complete
                         procurement manual is essential to an open procurement system because
                         policies, regulations, and the procurement process need to be available to
                         all sources and must be sufficiently clear and detailed for all sources to
                         understand them. Secretariat officials we spoke to acknowledged the
                         weaknesses in the current manual and are considering revisions. They also
                         stated that the manual is subject to regular review and revision.


Professional Workforce   Although the Secretariat has provided training courses to procurement
                         staff, these courses do not constitute a comprehensive curriculum to
                         provide a continuum of basic to advanced skills for the development of
                         procurement officers, as recommended by the Expert Group. A 1998 OIOS
                         report further found a mixed level of professional experience among
                         procurement personnel. While over 90 percent of a sample of headquarters
                         procurement staff had procurement-related qualifications or experience,
                         only 62 percent of a sample of field staff had U.N. or outside procurement
                         experience.18 OIOS recommended that training needs be identified and a
                         formal, procurement-specific training program be created. Also, in the
                         view of board officials, training for peacekeeping staff in the field
                         continues to be a problem. As a result, the board viewed field-level
                         procurement practices as a high-risk area. Without a more systematic
                         approach to training, the Secretariat cannot ensure that procurement is
                         carried out by a competent workforce capable of meeting mission
                         requirements.

                          Secretariat officials told us in January 1999 that an effort was under way to
                         improve the training and career path opportunities of U.N. system


                         18
                            Report of the Secretary-General on the Activities of the Office of Internal Oversight Services,
                         (A/52/813) (New York, N.Y.: United Nations, Mar. 5, 1998).




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              procurement officials. The Secretariat and other U.N. organizations are
              developing a system to share and coordinate training resources. Likewise,
              procurement staff are expected to be rotated among U.N. organizations and
              field missions in an effort to share their knowledge, broaden their
              experiences, increase their proficiency, and provide them with a career
              path.


Competition   Although the Secretariat has strengthened competitive practices in its
              procurements, there are still weaknesses in ensuring open competition.
              For example, in the 1996-97 biennial report, the board noted that no
              uniform pattern existed in the amount of time suppliers would be given to
              prepare and submit a bid.19 Nor could the board find any relationship
              between the size and complexity of contracts and the amount of time given
              for bid preparation. For example, some contracts valued over $200,000
              allowed only 4 weeks for bid preparation, while smaller contracts allowed
              a longer period. Board officials emphasized that the lack of guidelines
              setting out minimum times for the bidding period could lead to
              noncompetitive practices. The board also found that open tendering for
              major procurements above $500,000 was rarely used.

              Recent OIOS audit reports found weaknesses in compliance with
              regulations on competition. A 1998 OIOS report covering a series of audits
              conducted between June 1996 and December 1997 on procurement in the
              U.N. Angola Verification Mission found that goods were procured from a
              restricted group of middlemen at higher prices under doubtful
              circumstances.20 OIOS also reported that in several instances, the
              Mission's procurement section interfered in the requisitioning process. As
              a result of this interference, requisitions were split and processing was
              delayed. The splitting of requisitions allowed the bypassing of normal
              procurement procedures and of scrutiny by the Local and Headquarters
              Committees on Contracts. The transactions were investigated from 1995 to
              1997 and OIOS reported in April 1998 that action to correct some of the
              issues had taken place but action on the remaining issues needed to be
              closely monitored for completion. In a January 1998 audit of the U.N.
              Regional Commissions, OIOS found that at one of the four commissions,


              19Financial Report and Audited Financial Statements for the Biennium Ended 31 December 1997 and
              Report of the Board of Auditors, Vol. I (A/53/5) (New York, N.Y.: United Nations, July 30, 1998).

              20
                 Report on the Audits of the Procurement Process in the U.N. Angola Verification Mission, OIOS
              (A/52/881) (New York, N.Y.: United Nations, Apr. 28, 1998).




              Page 13                                                         GAO/NSIAD-99-71 United Nations
        B-281996




        purchase files contained no evidence of a market survey or an assessment
        of competitive quotations, except in a few major cases.21 Board officials
        told us in January 1999 that these infractions were issues of compliance
        rather than systemic internal control problems, since clear rules and
        regulations are in place.


Value   Two key reform actions to ensure the Secretariat receives the best value for
        its money have not been implemented. First, the Expert Group called for
        the development of performance measures to monitor both the internal
        work processes, such as timeliness in preparing requisitions and vendor
        performance for quality, cost, and on-time delivery. However, as of January
        1999, Secretariat officials had not developed performance measures for the
        procurement system, except for procurement operating costs as a
        percentage of total procurement costs. Other measures of performance
        might include purchase order cycle time and average annual training hours
        per professional employee.22 According to procurement experts, such
        measures are fundamental to developing an effective procurement system
        and are used routinely in government and private sector organizations.
        Without such performance measures, the Secretariat will find it difficult to
        assess the effectiveness of its procurement system or to continuously
        improve its performance.

        A second reform action to enhance value was to introduce procurement
        planning so that purchases could be planned in advance. In August 1998,
        the Secretariat endorsed procurement planning—a requisite over the long
        term for ensuring best value for the money.23 Before that date, the
        Secretariat had taken the position that, particularly for peacekeeping
        missions, procurement planning was not feasible. In January 1999, OIOS
        officials said they had yet to see procurement planning occur. A senior
        Secretariat official said the Secretariat had taken initial steps to begin
        procurement planning, such as incorporating planned procurements in



        21
             Audits of the Regional Commissions, OIOS (A/52/776) (New York, N.Y.: United Nations, Jan. 27, 1998).

        22Examples  of benchmarking are contained in the following two publications: Cross-Industry
        Comparison of Standard Benchmarks (Tempe, AZ: Center for Advanced Purchasing Studies, Winter
        1997-98); and Guide to a Balanced Scorecard: Performance Management Methodology
        (Washington, D.C.: Procurement Executives’ Association, 1998).

        23
           Report of the Secretary-General: Procurement Reform (A/53/271) (New York, N.Y.: United Nations,
        Aug. 18, 1998).




        Page 14                                                            GAO/NSIAD-99-71 United Nations
                      B-281996




                      future estimated budget submissions. However, a systemic planning
                      process would not be in place until later in 1999.



Conclusions           The Secretariat has responded to the challenge of reforming its
                      procurement system and made improvements. However, the Secretariat
                      has not fully implemented several reform measures that would help ensure
                      the procurement system is open, fully competitive, and provides the best
                      value for its money. The Secretariat also has not developed performance
                      measures that would allow it to take corrective action and continuously
                      improve.



Agency Comments and   The Department of State and the United Nations provided written
                      comments on a draft of this report. The Department of State agreed with
Our Evaluation        our observations concerning the work that remains to be done in U.N.
                      procurement reforms, such as formalization of procedures for handling bid
                      protests. However, State and the United Nations believe that the U.N.’s
                      progress should have been better highlighted in our report, that significant
                      progress had been made in procurement reform, and that the structure and
                      tone of the report downplayed the progress achieved. The United Nations
                      commented that reform is an ongoing process and it would continue its
                      procurement reforms. It further commented that the report
                      overemphasized past problems rather than measures taken to address
                      them and that we could have developed a more comprehensive review of
                      the subject through more substantial research of publicly available
                      documents such as those of the General Assembly, which reflected the
                      discussions of the legislative bodies. In this regard, the United Nations.
                      stated that it had made significant progress on the major system issues
                      identified by the High Level Expert Group and that it was working on the
                      few remaining operational issues to improve compliance.

                      Our report discusses examples of progress in the first paragraph of our
                      Results in Brief and devotes a section of the report to progress that we
                      could substantiate. We also state several times in the report that the U.N.
                      Secretariat has made considerable progress in improving its procurement
                      system. However, we balance the findings of progress against findings
                      based on OIOS and other oversight organizations’ reports, as well as testing
                      of our own, that some reform recommendations that affect the
                      performance of the entire system have not been implemented or are
                      incomplete. Our analysis, as well as interviews with U.N. officials,



                      Page 15                                         GAO/NSIAD-99-71 United Nations
B-281996




indicates that the issues that have not been fully implemented are not
merely compliance concerns but rather affect the procurement system.
For example, the lack of performance measures, a training curriculum,
formal grievance procedures, and a comprehensive planning process affect
overall procurement system operations and indicate that the United
Nations has yet to achieve the Expert Group’s baseline objective of creating
a procurement system with the capacity to continuously improve and
provide goods and services on time as cost-effectively as possible.

State and U.N. officials also provided technical comments, which we have
incorporated in the report as appropriate. The comments of the
Department of State and the U.N. Secretariat are reprinted in their entirety
in appendixes IV and V, respectively.


We are sending copies of this report to the Honorable Madeleine K.
Albright, the Secretary of State; the Honorable A. Peter Burleigh, the acting
Permanent Representative of the United States to the United Nations, the
Honorable Kofi Annan, the Secretary-General of the United Nations; and
other interested congressional committees. Copies will be made available
to others on request.

Please contact me at (202) 512-4128 if you or your staff have any questions
about this report. Major contributors to this report are listed in
appendix VI.

Sincerely yours,




Harold J. Johnson, Associate Director
International Relations and Trade Issues




Page 16                                         GAO/NSIAD-99-71 United Nations
Page 17   GAO/NSIAD-99-71 United Nations
Contents



Letter                                                                                              1


Appendix I                                                                                         20
Scope and
Methodology

Appendix II                                                                                        23
The U.N. System

Appendix III                                                                                       25
The U.N. Secretariat’s
Procurement Process

Appendix IV                                                                                        28
Comments From the
Department of State

Appendix V                                                                                         30
Comments From the
U.N. Secretariat

Appendix VI                                                                                        34
Major Contributors to
This Report

Tables                   Table III.1: Steps in the Secretariat’s Procurement Process               27


Figures                  Figure II.1: The U.N. System                                              24
                         Figure III.1: Flow Chart of the Secretariat’s Procurement Process         26




                         Page 18                                        GAO/NSIAD-99-71 United Nations
Contents




Abbreviations

IAPSO      Inter-Agency Procurement Services Office
OECD       Organization for Economic Cooperation and Development
OIOS       Office of Internal Oversight Services



Page 19                                    GAO/NSIAD-99-71 United Nations
Appendix I

Scope and Methodology                                                                       AppeInxdi




             We conducted our work at the U.N. headquarters in New York City and at
             the Department of State in Washington, D.C., including the U.S. Mission to
             the United Nations in New York. Our scope was limited to examining the
             U.N. Secretariat’s procurement system, which includes procurements for
             U.N. peacekeeping missions; we did not examine procurement at the other
             agencies, funds, and programs of the U.N. system. We interviewed officials
             from and reviewed documents from the U.N. Secretariat, the U.N. Board of
             Auditors, the U.N. Office of Internal Oversight Services (OIOS), the General
             Assembly, and the U.S. Mission to the United Nations about the
             Secretariat’s procurement problems, reform history, and current status.
             We also reviewed a report issued by the U.S. government on problems in
             procurement for U.N. peacekeeping and reports by the U.N. Advisory
             Committee on Administrative and Budgetary Questions on measures taken
             to resolve weaknesses in the Secretariat’s procurement system. Our
             information on the extent to which the Secretariat has implemented reform
             measures was based on the findings of OIOS and the U.N. Board of
             Auditors, and interviews with U.N. officials.

             To develop an organizing framework for reporting on U.N. procurement
             problems, the progress made in implementing reform actions, and our
             assessment of whether this progress has met the reform objectives of the
             High Level Expert Group on Procurement, we identified the objectives of
             the reform. To do this, we reviewed the Expert Group report, which
             contained a wide-ranging discussion of issues that needed to be addressed
             in the U.N.’s procurement system, including (1) integrity/fairness,
             (2) openness/transparency, (3) accountability, (4) professional workforce,
             (5) competition, and (6) value. These six elements were most clearly
             discussed in a report used by the Expert Group entitled Constraining Costs
             and Improving the Efficiency of United Nations Peacekeeping Procurement
             Operations. This report explained that these were the characteristics the
             United States identified for the Organzation for Economic Cooperation and
             Development (OECD) as central to any well-structured procurement
             system. To ensure these characteristics were commonly recognized, we
             reviewed procurement policy documents of several other organizations
             and offices, such as the OECD (Support for Improvement in Governance
             and Management Policy Brief 3: Public Procurement), the United Nations
             (The Common Guidelines for Public Procurement by U.N. Organizations),
             the European Union (Application of European Procurement
             Law–Communication Adopted by the Commission on 27 November 1996),
             and several national government agencies. These entities all used similar
             descriptions about the objectives and characteristics of their procurement
             systems. We also discussed these characteristics with the Deputy Assistant



             Page 20                                         GAO/NSIAD-99-71 United Nations
Appendix I
Scope and Methodology




Administrator for Acquisition Policy for the U.S. government’s General
Services Administration and a private sector expert on procurement who
was formerly the Administrator for Federal Procurement Policy for the U.S.
government. Based on this work, we decided to use the six characteristics
as the organizational framework for our reporting.

To identify the types of problems found by the High Level Expert Group on
Procurement and U.N. oversight entities, we first reviewed the 1994-98
reports of OIOS and the Board of Auditors’ Biennial Financial Reports
covering the period 1988 through 1997. We found they had cited numerous
problems, ranging from individual instances of noncompliance with
procurement regulations to a systemwide failure to compete contracts. We
summarized all the problems and entered them into a text query database.
To organize the problems by type, we categorized each problem according
to the definitions for the six elements of an effective procurement system—
integrity, openness, accountability, workforce, competition, and value. For
example, the finding that open tendering for major procurements above
$500,000 was rarely used was categorized as a problem in the area of
competition. This provided us with concrete examples for each type of
problem and gave us a sense of their nature and extent.

To identify the measures taken by the Secretariat to reform its procurement
system, we examined the Secretariat's progress reports from 1995 to 1998
outlining the steps it had taken in response to the recommendations in the
1994 Expert Group report. The most recent Secretariat progress report
was dated November 10, 1998. Where possible, we verified that these steps
had been taken. For example, we obtained (1) a copy of the procurement
manual to verify that it had been prepared and contained clearly defined
policies and procedures, (2) policy documents on delegations of authority
to verify that authority to field missions had been increased, and
(3) organization and management charts and documents to verify that
offices had been consolidated. We also observed the computer operation
and supporting data entry sheets for the field inventory system to verify
that an inventory of existing assets had begun. In addition, we reviewed
statistics on the number and amount of contracts awarded without
competition, examined the electronic filing for contract bids and awards on
the internet, and followed up on the extent of training provided to
procurement officers and the content of the training classes offered.

We assessed the Expert Group’s report for its overall objectives, and we
analyzed and classified many of its specific recommendations by the
characteristics of an effective procurement system. We then analyzed



Page 21                                        GAO/NSIAD-99-71 United Nations
Appendix I
Scope and Methodology




OIOS and other reports on the extent to which the Secretariat had
implemented the recommendations. The latest OIOS report on
implementation of the recommendations was dated March 5, 1998. We
updated this information by interviewing OIOS and Board of Auditors
officials on their assessment of whether the Secretariat had taken further
steps. We supplemented this assessment by reviewing reports that
included procurement issues published in 1998 by OIOS and the Board of
Auditors and seeing if problems still occurred in the areas where the
Secretariat had implemented reform measures. We interviewed officials
from the U.N. Board of Auditors, OIOS, and Procurement Division staff as
well as knowledgeable Secretariat officials, such as the Assistant
Secretary-General for Central Support Services and the Under Secretary-
General for Management to discuss the steps that had been taken to reform
the procurement system.

We performed our work from July 1998 to January 1999 in accordance with
generally accepted government auditing practices.




Page 22                                       GAO/NSIAD-99-71 United Nations
Appendix II

The U.N. System                                                                               AppIex
                                                                                                   ndi




              The U.N. system of organizations covers a wide variety of organizational
              units, including offices, departments, centers, specialized agencies, funds,
              and programs that vary considerably in size and mission. The U.N. General
              Assembly, consisting of almost all nation states, is the major representative
              body of the U.N. system and works with the other principal components of
              the United Nations, such as the Security Council and the Economic and
              Social Council. The Specialized Agencies are also considered part of the
              U.N. system, although each has its own charter. (See fig. II.1.)




              Page 23                                         GAO/NSIAD-99-71 United Nations
                               Appendix II
                               The U.N. System




Figure II.1: The U.N. System




                               Legend
                               ACABQ=Advisory Committee on Adminsitrative and Budgetary Questions
                               Source: U.N. Documents




                               Page 24                                                  GAO/NSIAD-99-71 United Nations
Appendix III

The U.N. Secretariat’s Procurement Process                                                       AIpIex
                                                                                                      ndi




               Goods and services procured by the Secretariat through its normal process
               involves multiple steps depending on the size of the contract, including
               entering information about the procurement into a database. The process
               is outlined in figure III.1, which provides a flow chart of the process, and is
               described in table III.1, which lists the individual steps keyed to the flow
               chart.




               Page 25                                           GAO/NSIAD-99-71 United Nations
                                                               Appendix III
                                                               The U.N. Secretariat’s Procurement Process




Figure III.1: Flow Chart of the Secretariat’s Procurement Process

                                                      10                           Department/Office
                                                                               originating the requisition                              1

                                                                                   Certifying Officer                                   2


              REALITY
                                                                                              11
              1 Automated roster list                                                                                              12
              2 Other agencies’ rosters                                           Goods inspection                                              IMIS
              3 Catalog of common items
              4 Generic specifications
                                                                                                                               3

                                                                                Procurement Division

                                                                Commodity                              Commodity
                                                                procurement section 1                  procurement section 2       3a

                                                                                             4
                                                                                  4b             4a
                                                                           N                               Y
                         4c                                                        Systems contract
                                                                                       in place?
                        Short list of
                     potential vendors
                                                                                                   5

                                                       >$25,000<$200,000                                  <$25,000
                                                5b1                                    >$200,000
                  ITB (equipment) or
                 RFP (service) prepared                                                                                         5c1
                                                                    ITB (equipment) or RFP (service) prepared                                                         5a1
                                                                                                                                                      ITQ
                                                                                                                                               issued to vendors
                                                5b2
                    ITB or RFP issued                                                                                          5c2
                                                                           ITB or RFP issued to vendors
                        to vendors
                                                                                                                                                                      5a2
                                                                                                                                            Lowest quote/best value
                                                                                                                               5c3                 accepted
                                                5b3                       Vendors provide bids/proposals
                      Vendors provide
                       bids/proposals
                                                                                                                               5c4
                                                                                       Bid opening
                                                5b4
                        Bid opening                                                                                            5c5
                                                               Bids evaluated Technical evaluation (Requisition office)
                                                                   Commercial evaluation (Procurement Division)
                                            5b5
                       Bids evaluated                                                                                          5c6
                    Technical evaluation                                         Presentation to HCC
                     (Requisition office)
                   Commercial evaluation                                                                                       5c7
                   (Procurement Division)                                            ASG approval

                                                           6
                                                                  Winning vendor notified by Procurement Division

                                                           7
                                                               Purchase order (equipment) contract (service) prepared


           Receiving information            9              8
                                                                       Transportation Division receives items                      9        Receiving information
                                            10




                                                               Page 26                                                                         GAO/NSIAD-99-71 United Nations
Appendix III
The U.N. Secretariat’s Procurement Process




Table III.1: Steps in the Secretariat’s Procurement Process

Step      Action
1         Department/Office originates requisition in Integrated Management Information
          System (IMIS)
2         Department/Office certifying officer certifies requisition to ensure funds are
          available, item is needed, and account for item is available
3         Procurement Division pulls requisition from IMIS
3a        Procurement Division assigns requisition to appropriate section
4         Check for existence of a systems contract
4a        Systems contract in place (move to step 7, issue purchase order/contract)
4b        No systems contract in place, check REALITY system for potential vendors
4c        Short list of vendors prepared (goal: to include as many vendors as possible)
5         Establish value of the procurement
5a1       Value of procurement up to $25,000, issue request for quotes
5a2       Accept lowest quote/best value (move to step 7, issue purchase order/contract)
5b1       Value of procurement greater than $25,000 and up to, but not more than,
          $200,000, prepare invitation to bid/request for proposals
5b2       Issue invitation to bid/request for proposals to vendors
5b3       Vendors provide bids/proposals
5b4       Bid opening
5b5       Bids evaluated by requisitioning office and Procurement Division (move to step 6,
          select and notify winning vendor)
5c1       Value of procurement greater than $200,000, prepare invitation to bid
          (equipment), request for proposals (service)
5c2       Issue invitation to bid/request for proposals to vendors
5c3       Vendors provide bids/proposals
5c4       Bid opening
5c5       Bids evaluated by requisitioning office and Procurement Division
5c6       Bids/proposals presented to the Headquarters Committee on Contracts
5c7       Assistant Secretary-General, Department of Central Support Services, issues
          approval of winning vendor
6         Winning vendor selected and notified
7         Purchase order (equipment)/contract (service) drafted, contract reviewed by
          Office of Legal Affairs
8         Transportation Division receives items purchased
9         Receiving information entered into REALITY system and IMIS
10        Goods delivered to requisitioning office
11        Requisitioning office inspects goods
12        Inspection report entered into IMIS
Source: GAO, based on U.N. procurement regulations and discussions with U.N. officials.




Page 27                                                       GAO/NSIAD-99-71 United Nations
Appendix IV

Comments From the Department of State                       ApV
                                                              enIxdi




              Page 28          GAO/NSIAD-99-71 United Nations
Appendix IV
Comments From the Department of State




Page 29                                 GAO/NSIAD-99-71 United Nations
Appendix V

Comments From the U.N. Secretariat                                 ApV
                                                                     enx
                                                                       di




Note: GAO comments
supplementing those in
the report text appear at
the end of this appendix.




See comment 1.




                            Page 30   GAO/NSIAD-99-71 United Nations
                 Appendix V
                 Comments From the U.N. Secretariat




See comment 2.




See comment 3.




See comment 4.



See comment 5.




See comment 6.




                 Page 31                              GAO/NSIAD-99-71 United Nations
               Appendix V
               Comments From the U.N. Secretariat




               The following are GAO’s comments on the U.N. letter dated March 25, 1999.



GAO Comments   1. Our report is based on a complete review of the debate on activities
               pertaining to the Secretariat’s procurement reform efforts, including
               documents from the General Assembly, Advisory Committee on
               Administrative and Budgetary Questions, and the oversight offices; testing
               of some reform implementation; and additional information provided by
               U.N. officials. Our review of this information demonstrated that while the
               Secretariat has taken action on most of the Expert Group’s
               recommendations, in some instances, these actions have not been fully
               implemented.

               2. We found that some steps had been taken to do procurement planning;
               however, as acknowledged by U.N. procurement officials, a comprehensive
               procurement planning process was not yet in place. Audit officials also
               said that although some peacekeeping procurement planning was
               occurring, they had not seen evidence that procurement planning had
               become a routine activity within the Secretariat. The report has been
               modified to recognize what has been accomplished in the area of
               procurement planning.

               3. The report has been modified to reflect the progress that has been made
               to develop a performance measurement system. However, it is important
               to recognize that collecting information on one indicator does not mean a
               performance measurement system is in place.

               4. Our draft report acknowledged that a new procurement manual had
               been issued. However, we reviewed the revised manual and found that
               certain elements recommended by the Expert Group, such as a mission
               statement and step-by-step discussions of procedures for field personnel to
               perform their duties, were not incorporated into the manual.

               5. Our draft report acknowledged that the U.N. Secretariat had taken steps
               to improve the training of its procurement staff. However, at the time of
               our review, a formal and comprehensive training curriculum, as
               recommended by the Expert Group and U.N. audit organizations, had not
               been developed.

               6. Although competitive practices have been strengthened, we agree with
               the Board of Auditors that the time period vendors have to bid on U.N.
               contracts needs to be clearly written into the financial regulations and that



               Page 32                                         GAO/NSIAD-99-71 United Nations
Appendix V
Comments From the U.N. Secretariat




open tendering for large contracts should be routinely used. We believe
these shortcomings are systemic weaknesses and not simply matters of
compliance. On the other hand, the audit findings about the failure in one
location to conduct or document market surveys and assessments of
quotes were issues of compliance, which we recognized.




Page 33                                        GAO/NSIAD-99-71 United Nations
Appendix VI

Major Contributors to This Report                                          ApenV
                                                                               xdiI




National Security and   Tetsuo Miyabara
                        Richard J. Boudreau
International Affairs   David M. Bruno
Division, Washington,   Lenora R. Fuller
                        Rona H. Mendelsohn
D.C.




(711344)      L
              ertet     Page 34               GAO/NSIAD-99-71 United Nations
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